Postpones state personal income tax rate reduction for by odf74733

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									                          Ohio Legislative Service Commission
                                                                                                                                      Phil Cummins

                         Fiscal Note & Local Impact Statement
Bill:             Am. H.B. 318 of the 128th G.A.                                    Date:                  October 23, 2009

Status:           As Passed by the House                                            Sponsor:               Rep. Sykes

Local Impact Statement Procedure Required: No – minimal cost

Contents:         Postpones state personal income tax rate reduction for two years and reduces legislators' pay


                                                   State Fiscal Highlights
STATE FUND                             FY 2010                                        FY 2011                              FUTURE YEARS
General Revenue Fund
   Revenues             $405 million to $416.1 million gain          $420 million to $428.3 million gain                             -0-
   Expenditures               $285.2 million increase                       $566.0 million increase                  Up to $0.6 million reduction
Lottery Profits Education Fund (Fund 7017)
   Revenues                               -0-                                           -0-                                          -0-
   Expenditures               $285.2 million decrease                       $566.3 million decrease                                  -0-
Note: The state fiscal year is July 1 through June 30. For example, FY 2010 is July 1, 2009 – June 30, 2010.


               The bill delays the reduction in personal income tax rates scheduled for tax year
               (TY) 2009 by two years. Most (94.35%) of the resulting increase in revenues is
               retained by the GRF.
               The 5% reduction to legislators' pay will reduce GRF expenditures in the second half
               of FY 2011 and all of FY 2012 and thereafter.
               Expenditures from the Lottery Profits Education Fund are reduced $851.5 million for
               the biennium and expenditures from the GRF for foundation funding are increased
               by the same amount.




                      Vern Riffe Center  77 South High Street, Ninth Floor  Columbus, Ohio 43215-6136  Telephone (614) 466-3615
                                                                    www.lsc.state.oh.us
                                                    Local Fiscal Highlights
LOCAL GOVERNMENT                               FY 2010                                FY 2011                               FUTURE YEARS
Local Government Funds
   Revenues                 $24 million to $24.9 million gain           $25 million to $25.6 million gain                            -0-
   Expenditures                               -0-                                        -0-                                         -0-
Municipal Corporations, School Districts
   Revenues                                   -0-                                   Minimal loss                               Minimal loss
   Expenditures                               -0-                                        -0-                                         -0-
Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.


               Delaying the reduction in personal income tax rates scheduled for TY 2009 by two
               years increases revenues to the Local Government Fund and the Public Library Fund
               by 5.65% of the total increase in income tax revenues in the current biennium.
               The reduction in legislators' pay beginning in January 2011 would result in a
               minimal decrease in income tax revenues of municipal corporations and school
               districts where the legislators reside.


                                                    Detailed Fiscal Analysis
                The bill delays the last of five reductions in state personal income tax rates that
          were enacted in H.B. 66 of the 126th General Assembly, and reduces pay of state
          Senators and Representatives by 5%. In addition, the bill reduces the appropriation
          from the Lottery Profits Education Fund (Fund 7017), used for foundation funding
          payments by the Department of Education, by about $851.5 million for the biennium
          and increases funding for GRF line item 200550, Foundation Funding, by the same
          amount.

          Delay of personal income tax rate reduction
                 H.B. 66 of the 126th General Assembly reduced state personal income tax rates
          by 21% in approximately equal increments, 4.2 percentage points each year, over the
          five years from tax year (TY) 2005 through TY 2009. H.B. 318 delays the last of these
          rate reductions from TY 2009 to TY 2011, holding tax rates unchanged in TY 2009 and
          TY 2010 at the TY 2008 levels. The TY 2009 personal income taxes, with returns
          generally due April 15, 2010, are the main determinants of FY 2010 receipts from this
          tax. Similarly, TY 2010 personal income taxes correspond to FY 2011 receipts.
                 LSC estimates that deferring the TY 2009 personal income tax rate reduction until
          TY 2011 will increase personal income tax revenues to all funds by $429 million in
          FY 2010 and by $445 million in FY 2011, a total of $874 million for the current biennium.
          Of these amounts, 5.65% will be paid to the Local Government Fund and the Public
          Library Fund. This will result in the two local government funds receiving an
          additional $24 million in FY 2010 and $25 million in FY 2011, a total of $49 million. The


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GRF will retain the remaining 94.35%, an estimated $405 million in FY 2010 and
$420 million in FY 2011, a total of $825 million for the biennium.1
        These estimates are based on forecasts presented in LSC's testimony before the
General Assembly's Conference Committee in June, updated to take account of TY 2007
tax data released by the Department of Taxation. The estimates are not adjusted
downward for any tax avoidance behavior on the part of taxpayers that might occur in
response to retaining the higher tax rates. They also assume indexing of tax brackets for
inflation beginning in TY 2010, as provided in current law, unchanged by the bill.
       Estimates provided to LSC by the Department of Taxation show somewhat
higher gains in personal income tax revenue, on an all-funds basis, of $441 million in
FY 2010 and $453.9 million in FY 2011.         Out of these totals, the GRF retains
$416.1 million in FY 2010 and $428.3 million in FY 2011. The local government funds
receive additional amounts of $24.9 million in FY 2010 and $25.6 million in FY 2011.
       The bill, in addition, increases the tax credit on returns reporting Ohio taxable
income of $10,000 or less from $88 to $93, for TYs 2009 and 2010. Under current law, the
$88 credit offsets the maximum tax that would be owed on returns reporting incomes at
that level or lower, at the current statutory TY 2009 tax rates, ensuring that those
persons pay no personal income tax. The $93 credit offsets the maximum tax that
would be owed at the TY 2008 tax rates, held unchanged by the bill in TY 2009 and
TY 2010. This change is thus necessary to hold unchanged at zero the personal income
taxes owed by persons with Ohio taxable income of $10,000 or less in TY 2009 and
TY 2010.
        The bill also provides a safe harbor for taxpayers who underpaid their estimated
tax payments because the rate decline previously scheduled for TY 2009 is delayed by
this bill. This provision appears to hold unchanged the amount of any interest penalty
owed by these taxpayers.

Pay cut for legislators
       The bill reduces the salaries of legislators specified in R.C. 101.27 by 5%. This
includes base pay of Senators and Representatives and pay increments for chairpersons,
vice-chairpersons, and ranking minority members of standing committees and standing
subcommittees.2 These pay amounts total approximately $9 million. Consequently, a
5% reduction lowers pay by about $0.47 million each year. Under the Ohio
Constitution, legislators are prohibited from changing their compensation during their
terms of office. Consequently, the pay reductions will not go into effect until after the
128th General Assembly, in or after January 2011. Pay will be reduced in FY 2011 by
about $0.21 million.


1   These estimates are not adjusted for any delays in collection of the additional amounts owed.
2In addition, the Speaker and Speaker Pro Tempore of the House are precluded from receiving
any additional pay for serving as chairperson or vice-chairperson of a committee.
                                                  3
       Reduction of legislators' salaries by $0.21 million will result in additional savings
to the GRF for the cost of benefits. The largest of these is state matching contributions
to the Public Employees Retirement System toward legislators' retirement funds, in an
amount equal to 14% of pay. Others include accrual of sick leave, estimated at about
4% of pay; the cost paid by the state for premiums, equal to about 0.4% of pay, on life
insurance coverage equal to one year's salary; and workers' compensation premiums,
about 0.4% of pay. These additional savings raise the total estimated cost savings to the
state in FY 2011 to about $0.25 million. Not included are state payments for benefits
that do not vary with the amount of the employees' pay. The state's share of medical
insurance premiums, for example, does not vary with the amount of the employee's
pay.
       Legislators pay school district income taxes and municipal income taxes based
on their location of residence, not their place of work. A 5% cut in legislators' pay will
reduce income tax revenues to those school districts and municipal corporations in
which the legislators reside. The amounts of these reductions in local tax revenues will
generally be quite small relative to total collections for these governments from these
taxes.




HB0318HP.docx / cm




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